Court rules on recognition of foreign arbitral awards - International Law Office

Sections 38 and 39 of the Arbitration Act 2005 empower the court to recognise and enforce an award from a foreign state. In Food Ingredients LLC v Pacific Inter-Link Sdn Bhd ([2012] 8 MLJ 585) the Kuala Lumpur High Court had occasion to consider the exercise of this power.

The plaintiffs - Food Ingredients LLC and Agrovenus LLP, both incorporated in the United Kingdom - entered into identical contracts with the defendant - Pacific Inter-Link Sdn Bhd - to buy certain goods from the latter. After the goods had been delivered and the plaintiffs had paid the monies due under the agreement, the parties met in Istanbul, where it was purportedly orally agreed that the freight rate for the goods delivered would be reduced by a certain margin. A draft memorandum of understanding for that purpose was drawn up, but was never signed. A demand was issued by the plaintiffs for payment of the overpaid freight; when it was refused, the plaintiffs referred the matter to arbitration, pursuant to Clause 6 of the agreement. The arbitral tribunal sat in England and found in favour of the plaintiffs. The plaintiffs then applied for recognition and enforcement of the award in Malaysia.

The defendant raised a challenge that there was no valid arbitration agreement from which the arbitral tribunal could validly render an award. The plaintiff argued that by participating in the tribunal proceedings without objection, the defendant was estopped from questioning the jurisdiction of the arbitral tribunal at the enforcement stage. The court upheld the defendant's challenge and refused to recognise and enforce the arbitral award in Malaysia. In refusing the recognition and enforcement of the arbitral award, the court took into consideration Dallah Real Estate and Tourism Co v Ministry of Religious Affairs of the Government of Pakistan ([2010] 3 WLR 1472), where the issue arose as to whether the matter of jurisdiction may be raised at the stage of recognition and enforcement of the arbitral award. Both the English Supreme Court and the Malaysian Court, following the English Supreme Court, held that it could.

The UK Supreme Court took the position that the last word as to whether an alleged arbitral tribunal has jurisdiction will be with a court. In the present case, the arbitral tribunal was not concerned with the issues as to its jurisdiction and neither were the parties. However, the court held that it has the power, pursuant to Section 39 of the act, to examine the issue of the arbitral tribunal's jurisdiction, regardless of whether the issue was raised for the first time before the court or had been raised previously with the tribunal.

In determining jurisdiction, the Malaysian court held that for there to be a valid arbitration agreement, there must be an express agreement in the contract to that effect. The court, in upholding the defendant's challenge, held that there was no evidence before the court to establish there was an express intention by the parties to incorporate the arbitration clause in the agreement into the subsequent oral agreement by the parties in Istanbul that any dispute on the freight rebate would be resolved by arbitration. The court felt that the mere fact of the parties submitting to the arbitral tribunal was insufficient to grant the tribunal the jurisdiction to hear and determine the dispute. On this basis, the court held that there was no valid arbitration agreement from which the arbitral tribunal could validly render an award and refused to recognise and enforce the arbitral awards.

The Court of Appeal has since overturned this decision, but has yet to deliver its grounds. The matter is pending leave of the Federal Court. It remains to be seen how the highest court of the land will deal with this matter of jurisdiction and the extent to which the Malaysian courts will take cognisance of the decision in Dallah Real Estate.

For further information on this topic please contact K Shanti Mogan at Shearn Delamore & Co by telephone (+60 3 2070 0644), fax (+60 30 2078 5625) or email (shanti@shearndelamore.com).